No specifics yet on the components of repeal
Commentary from the A.M. Best Briefings. Reprinted with permission. Visit here.
OLDWICK, N.J., January 31, 2017 — A.M. Best has reviewed some major provisions of the Patient Protection and Affordable Care Act (ACA) and has evaluated the potential risk to U.S. health insurers if these provisions were part of a repeal, which seems likely given President Trump’s agenda and the Republicans control of Congress.
This review, detailed in a new A.M. Best briefing, found that premium and cost-sharing subsidies, if repealed, represent a significant risk to health insurers.
The Best’s Briefing, titled, “Potential Impacts of the Repeal of the ACA,” notes that there are no specifics yet on the components of the repeal or replacement plans for the ACA, and as a result, the evaluation considers just the impact from the repeal and does not consider what may be modified as part of a replacement plan.
The following are some highlights of the review:
- Premium Subsidies
As premium rates have grown, the government’s portion, or the premium subsidy, has increased as well. A.M. Best believes that if the premium subsidies are included as part of repeal without similar replacement, insurers could be significantly impacted and face a substantial premium shortfall. - Cost-Sharing Subsidies
Since a U.S. federal court has already ruled that cost-sharing subsidies were illegal, A.M. Best believes that there is a high probability that they could be eliminated as part of a repeal. Similar to the premium subsidies, if the cost-sharing subsidies were to be removed, health insurers could be left with a significant shortfall to cover claim costs. - Federal Exchanges/Small Business Health Options Program
Should federal exchanges go away under repeal, insurers could be left scrambling to find an alternate distribution. For those carriers who tend to lean on the exchanges for marketing, the removal of this source could be detrimental. - Expansion of Medicaid
If expansion of Medicaid is removed as part of a repeal, A.M. Best believes considerable membership declines could occur at health carriers that participate in Medicaid managed care. The briefing notes that Medicaid has become the leading source of growth for many carriers as well as a material source of operating earnings. - Individual Mandate
A.M. Best thinks that the potential removal of the individual mandate would have a medium risk to insurers in the near term, as many younger or healthier individuals have been opting to forgo coverage and pay the penalty as it is substantially lower than the cost of premium. However, over the longer term, the lack of a mandate could be a higher risk to insurers as it leads to worsening of the risk pool as the healthy may forego purchasing insurance.
Excerpts from AM Best’s Potential Impacts of Repeal of the ACA
The 2016 Presidential Election won by Donald Trump has brought renewed vigor to health care reform, with a particular target on repealing President Obama’s signature law, the Patient Protection and Affordable Care Act (ACA), more commonly referred to as Obamacare.
With Republican control of both the House of Representatives and the Senate, there is little doubt that the landscape of the health insurance industry is about to undergo a transformation over the tenure of Mr. Trump’s Presidency. In fact, one of the first items on the agenda of the 115th Congress is to successfully repeal the former President’s landmark legislation, which is then expected to be signed by President Trump as part of his “Day 1” campaign promise.
The repeal of the ACA will be completed using the budget reconciliation process, which only requires a simple majority of 51 votes in the Senate, something that should be easily obtainable. However, by utilizing the budget reconciliation process, the only items that can be repealed are those that relate to government spending or taxes. Both President Trump and House Speaker Paul Ryan have stated that both the repeal and replacement of the ACA would take effect at the same time. However, at this time, there are no specifics on the components of the repeal or replacement plans and when they would be effective.
- Risk Adjustment Program: A redistribution of funds based upon the risk of a health insurer’s population and does not utilize federal funds to make payments. The amount of money collected from insurers is the amount of money paid out to those with poorer risks. If a carrier is supposed to make a risk adjustment payment but cannot, the amount of the receivables (paid) to the other insurers in the same market declines. Since risk adjustments are budget neutral, A.M. Best believes that there is a low likelihood that this program would be considered as part of the repeal through budget reconciliation. Furthermore, A.M. Best believes that the impact from the risk adjustment program to health insurers is moderate as some carriers, particularly smaller insurers, have struggled with accurately estimating their risk adjustment receivable or liability. In addition, a number of plans have built in a risk adjustment receivable into their pricing and shortfalls between estimated and actual receivables or an estimated receivable and an actual payable has had significant impacts to some health insurers. However, A.M. Best recognizes that the ability of carriers to accurately capture the risk of its members may improve with proposed changes from the Centers for Medicare and Medicaid Services (CMS) that would allow plans to utilize prescription drug data in the calculation of the risk as well as include data for members in-force for less than one year.
- Health Insurer Fee (HIF): The HIF was $11.3 billion in 2015 and 2016 and is collected
from carriers based upon premiums. The purpose of the HIF is to help cover the cost of the premium subsidies. The HIF is passed on to the consumer (individual or employer group) through premiums. The HIF was waived for 2017 for a one-year exemption as part of the 2016 Consolidated Appropriations Act. Given that the HIF was waived, there is a greater likelihood that it could be included as part of the repeal, particularly if subsidies were included as well. Any removal or reduction of the HIF would be positive for health plans. While the HIF is largely passed on through premiums, it is not tax deductible and has had a greater impact on net income. - Premium Subsidies: Republicans have discussed tax credits and other forms of assistance for low income individuals to obtain coverage. A.M. Best believes that the subsidies in their current form and without the collection of the HIF to cover the costs could be part of the repeal. Furthermore, as premium rates have grown, the government’s portion, or the premium subsidy, increases as well. If the premium subsidies are included as part of repeal without similar replacement, insurers could be significantly impacted and face a substantial premium shortfall.
- Cost Sharing Subsidies: For individuals who receive premium subsidies and select a
silver plan design, the government pays a portion of their out of pocket costs (both co-pays and deductibles) and federal funding was not specified for the payment of the cost sharing subsidies. This issue was addressed in the case of the House of Representatives vs. Burwell, in which a federal district judge ruled in favor of the House of Representatives and stated that these subsidies were illegal but were kept in place while the Obama Administration appealed the decision. Since a U.S. federal court has already ruled that cost sharing subsidies were illegal, A.M. Best believes that there is a high probability that they could be eliminated as part of the repeal. Similar to the premium subsidies, if the cost sharing subsidies were to be removed, health insurers could be left with a significant shortfall to cover claim costs.
A.M. Best will continue to monitor the progress of the repeal and replacement of the ACA.
To access the full copy of this briefing, please visit here.
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